The Dow and Nasdaq broke their 7-day winning streaks with minor losses, while the S&P inched higher.

       

For the TSP funds, the C-fund gained 0.12%, the S-fund fell 0.45% of Tuesday's large gains, and the I-fund gained 0.46% with more weakness in the dollar.  The F-fund (bonds) gained 0.26%. 

Before the late rally it was looking like a certainty that, not only would the S&P 500 not close above the descending resistance line, but that it would close below the 200-day EMA after two closes above it.  That's why I like to see at least 3 to 5 before calling a trend change.

But, by the close the S&P was back above the 200-day EMA (for a 3rd day in a row) and it ticked above that resistance line.  That is great news, but the problem is it was a late news driven move that can be tough to trust. 

        

Because we need to make our TSP decisions before noon ET, I assumed that we would not see a close above the 200-day EMA and the descending resistance line, so I sold half of my TSP stock fund holdings when the Dow was down over 100-points Thursday morning. 

The good news is, the late rally got me out at a higher price compared what it appeared would happen.  The bad news is, if this rally continues, I'm out of luck putting more money into the stock funds until August.  Don't you just love the TSP deadlines and trading limits?  Thank goodness the TSP is saving tons of money after imposing the limits.  Oh, wait!  That's right.  Costs have not gone down since they have been implemented.  That's why they don't talk about them anymore.  But I digress.

The S&P 500 has now closed above the 200-day EMA for three consecutive days, which is a very good thing, but I am a little skeptical in how it did it yesterday so I'll be curious to see what happens today, or better yet, next week since today is option expiration Friday and it can be a little less than a "normal" day.

The main reason for my decision to sell some (as I actually said I might do on Wednesday) was  because it looked as if the 200-day EMA was not going to hold, and resistance was going to force another leg down.  Now I don't know if I've made the right choice, but I might sleep better.  If the market goes up, well I'll have 50% in the stocks funds and I won't miss out completely.  If the market goes down, I won't lose as much.  Ahh, who am I kidding, I actually hate being half committed like this, but the truth is I have no idea which way we go from here.  I'll just have to keep watching.


                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I come back to the 2007-2008 chart which showed the death cross in January of 2008.  (By the way, I was mistakenly calling it the "golden cross" but that actually refers to the 50-day EMA crossing above the 200-day EMA.  The "death cross" is the move below.) 

At about the same time that the 50 EMA fell below the 200 EMA in 2008, there has been a series of lower lows with a descending resistance line similar to what we are seeing today.  That resistance held and the S&P did not recover for months.  That kind of spooked me yesterday morning as the S&P was down 120-points pulling away from the current resistance  trend line.             
                         
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The difference between what happened then, and what is happening now could be that the "dumb money" of the Rydex Ratio indicator (see below),  was much more bullish back then, than it is right now. 

 
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The current extreme bearish sentiment in the Rydex Ratio is one of the reasons I had suspect that this market had enough ammunition to continue higher.  This indicator is so bearish that it is hard to believe the market could go much lower, but there have actually been lower readings, although you have to go back to the 1990's to find them.  The bullishness of the smart money put/call ratio indicator (not shown) was the other main reason.  These reading are still valid, but yesterday's sell-off at resistance took over and over-ruled my rational thinking.

The TSP Talk Sentiment Survey came in at 43% bulls, 43% bears for a 1.00 to 1 ratio.  I guess I'm not the only one who doesn't know which this market is going to go.  That 1 to 1 ratio keeps the system on a sell signal for next week as we stick with the bear market rules (50-day EMA still slightly below the 200-day EMA.)

I received a lot of comments yesterday, about the positive feedback I have been recently getting on the message board about these commentary.  It triggered more of you to send emails showing your appreciate for the daily commentary, and while that was not my intention, I want you to know that it was greatly appreciated.  It meant a lot to me to hear that I am actually helping some of you.  Thank you, really.  As I said yesterday, I never really know who is reading every day, but thanks to your emails, I see that I am actually doing some good.   

Thank you for reading.  Have a great weekend!

Tom Crowley